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Frequently asked questions
What is corruption?
Corruption is operationally defined as the misuse of entrusted power for private gain.
Companies worldwide spend billions of dollars annually to "buy" benefits for their business operations, often outside of legal frameworks. For example, some government officials expect an illegal payment, or bribe, to enable or expedite a legal (or sometimes illegal) company operation.
Why is corruption a problem?
According to the World Bank, corruption is the single greatest obstacle to economic and social development. It costs more than 5 % of the world's gross domestic product (GDP), or approximately US$ 3 trillion.
Corruption has political, economic, social and environmental effects:
Political: In a democratic system, offices and institutions lose their legitimacy when they are misused for private advantage. Accountable political leadership cannot develop in a corrupt climate.
Economic: Corruption leads to the depletion of national wealth. It hinders the development of fair market structures and distorts competition, thereby deterring investment. Often, scarce public resources are diverted to uneconomic, high-profile projects.
Social: Corruption undermines people's trust in the political system, its institutions and leadership. The frustration results in a weak civil society, which in turn offers opportunities for unethical leaders.
Environmental: Due to the lack, or non-enforcement, of environmental regulations and legislation, environmentally devastating projects are often given preference in funding, as they are easy targets for channelling public money into private pockets.[1]
Corruption hampers development, deters investment, distorts prices, undermines legal and judicial systems and curbs economic growth. It robs local populations in underdeveloped countries of critically needed resources. In extreme cases, this can lead to international discontent and breed terrorism.
How does corruption hurt business?
Bribes to foreign public officials influence the awarding of international contracts.
According to one estimate, in the five years from April 1994 to April 1999, bribes to foreign officials played a role in the award of 294 contracts worth about US$ 145 billion.
Shouldn't the "corruption problem" be solved by governments?
Governments and NGOs, such as Transparency International, have made great strides in combating this crime during the past 30 years:
* The US Foreign Corrupt Practices Act (FCPA), the first targeted anti-corruption law, was passed in 1977.
* Since 1997, 36 developed countries have adopted the OECD Convention Against Bribery.
* In December 2003, the comprehensive United Nations Convention Against Corruption (UNCAC) was signed by more than 100 nations, establishing the first universal commitment to tough anti-bribery standards. To date, 30 countries have ratified the convention triggering its entry into force.
* Transparency International actively engages in the fight against corruption raises awareness and offers practical guidance - for all stakeholders in society.
* More recently, the APEC Business Advisory Council (ABAC) of the Asia-Pacific Economic Cooperation (APEC) crafted an anti-corruption statement that many companies have adopted.
* The United Nations Global Compact has added a 10th Principle addressing corruption.
With these actions in place, why should companies get involved?
While governmental initiatives are vital to continued progress in the fight against corruption, international business can and must play a decisive role, putting to use its considerable resources, practical experience and front line position. Often, it is companies that pay bribes to governments or other organizations in order to facilitate their operations; thus, global business can have a great impact on curbing corruption. Most international companies are subject to one or more anti-bribery laws requiring internal programmes. If business does not help shape the evolving regulatory framework, it will most likely be forced upon them. Corruption undermines the base of the free enterprise market, and ethical companies will remain at a competitive disadvantage until strong anti-corruption practices are more widespread.
By getting involved in the fight against corruption, business can level the playing field and protect its interests in the conduct of international commerce.
So, how are global businesses getting involved?
In the last couple of years, the World Economic Forum, Transparency International and the Basel Institute on Governance have engaged chief executives in discussions on the issue of corruption and garnered their interest and commitment to do something beyond their own policies. At the World Economic Forum's Annual Meeting 2003 in Davos, Switzerland, the world's leading engineering and construction firms formed a task force to develop a zero tolerance programme to combat corruption and contribute to the goals of ethical conduct, good governance and economic development. Recognizing the importance of such work, the Energy and Mining & Metals business sectors, as well as others, have joined the initiative. The Partnering Against Corruption Initiative (PACI) was formally launched at the World Economic Forum Annual Meeting 2004 and, since then, has gained considerable support from numerous companies and other organizations.
What is the Partnering Against Corruption Initiative (PACI)?
The PACI is the only global business-driven, anti-corruption initiative; it commits corporate leaders to action. It brings together companies in multiple industries from all over the world, regardless of their membership in the World Economic Forum or the size of their company. By signing the PACI Principles, signatory companies commit to having a zero tolerance policy towards bribery and to developing and implementing or maintaining a broad-based, anti-corruption programme to guide the behaviour of their employees. These principles also apply to key business relationships with controlled subsidiaries, joint ventures, agents and other intermediaries, as well as contractors and suppliers. Effectiveness is ensured by a self-assessment process, which allows for companies to receive expert feedback on their anti-corruption programmes.
If governments have established initiatives and Transparency International has developed its Business Principles for Countering Bribery, why do we need another initiative?
Government initiatives are just one part of the solution and often lack enforcement. Transparency International's Business Principles for Countering Bribery do not require companies to publicly commit to action. Internationally operating anti-corruption initiatives working with the private sector today reach less than 1% of global business.
The objective of PACI is to commit companies to a set of actions, driven by endorsement of its business principles, which were derived from Transparency International's Business Principles.
What are the obligations on a company resulting from engagement in PACI?
Through signature, company leaders commit to:
* Zero tolerance towards bribery within their company
* Enhancing, or developing and implementing, a broad-based, anti-corruption programme, systems and controls to guide the behaviour of company employees Within two years of signature, PACI signatory companies are required to submit a self-assessment to demonstrate progress.
What has PACI achieved since its inception?
To date, PACI has:
* Developed the PACI Principles for Countering Bribery, which address ethical conduct regarding bribes, facilitation payments, political contributions and gifts, as well as charitable contributions and sponsorships
* Received more than 110 signatory companies representing revenues of more than US$ 500 billion and reaching more than 1.5 million employees worldwide
* Worked with the World Bank to include anti-bribery language as part of their bidding process for the infrastructure projects it finances
* Developed and made available tools supporting companies to implement an anti-corruption programme
* Established a process for sharing experiences and best practices to further help the PACI signatories implement effective programmes in their own companies
* Has ensured that the necessity for companies to counter corruption and bribery is presented at national, regional and international meetings, which are attended by the top decision-makers of companies
What else does the PACI have planned?
PACI is continuously reaching out to companies to engage them in the fight against corruption. PACI is further developing supplemental guidance materials and other practice tools for company use. PACI is working closely with multilateral development banks and other international finance organizations towards achieving joint goals in the global fight against corruption.
Why should a corporation sign the PACI Principles?
* Corruption is criminal, and the fight against it is the right thing to do.
* Engaging against corruption demonstrates leadership and inspires employees.
* An effective corporate compliance programme offers practical benefits in public relations, marketing, employee morale and procurement eligibility.
* Governments and clients are beginning to require some level of anti-corruption standards.
* Implementing the Principles can reduce legal and reputation risks and expenses. In some countries, having a strong programme can mean lower penalties.
* The Principles are supported by the UN's Global Compact as a pragmatic implementation effort in line with the goals of the Compact's anti-bribery standard.
* Today, companies newly joining the PACI benefit from the counsel of others that have already done a lot of the work.
* PACI supports sharing experiences and exchanging best practices.
My company's anti-corruption and ethics programmes work very well. Why should I engage? Will signature to PACI be a step down for us?
Companies with strong ethics and anti-corruption programmes in place typically already meet PACI requirements, so engagement is easy. However, companies that have sound anti-corruption programmes in place shall benchmark their existing programmes against the PACI Principles to ensure full alignment. As a PACI signatory, a company becomes part of a network of other leading and respected companies that are dedicated to fighting corruption. While it would be difficult for a single company to make much progress in the fight against corruption, their collective power is changing the way business is being done globally - for the better.
Additionally, companies bidding for contracts will meet the increasingly strict bidding standards of multilateral development banks and international finance institutions. PACI serves as a strategic differentiator for companies that follow strict zero tolerance towards bribery and have effective anti-corruption programmes in place.
Will the Business Principles change my company's formal legal obligations?
No. Legal obligations are governed by applicable national laws, which parallel most rules and practices addressed in the PACI Principles; when they diverge, applicable law still governs. Simply put, the PACI Principles are a blueprint for constructing an effective programme for implementing corporate obligations under anti-bribery laws.
How much does it cost our company to be engaged in PACI?
Signature to and engagement in the PACI is free of any charges. However, the efforts of PACI are funded by voluntary financial, staff and in-kind contributions, as well as unpaid participation time. Accordingly, contributions are welcome.
Is it realistic to think that long-standing, human nature practices can really be changed?
Yes. Although corruption is pervasive and seemly intractable in many places, real progress is being made. This is evident through the progress made by corporate compliance practice, as well as through governmental and NGO initiatives.
What about the demand side?
PACI's focus has been on the supply side of bribery, meaning payments made and unsound benefits provided from the private sector, since this is where the most immediate and practical effect can be achieved from a corporate perspective.
However, change on the demand side, meaning the receiving end, is also needed. Governmental initiatives support this end. Furthermore, universal standards established by the new United Nations Convention Against Corruption (UNCAC) should be able to accelerate supply side reforms.
Shouldn't PACI have more signatories now? For those who choose not to sign, what reasons do they give?
PACI has gotten off to an excellent start, with over 120 signatories from multiple industries to date. Of course, more signatories would mark an even greater success; but just three years ago, PACI did not exist. There were no anti-corruption principles to publicly commit to and no business-driven and implementation-oriented task force of company representatives met regularly on the issue and to address practical angles of relevance. To attract companies that have not been directly associated with either the World Economic Forum or the PACI process, PACI - in collaboration with other anti-corruption initiatives addressing the private sector - must continue to strive towards reaching a critical mass of companies and provide sound, solid reasons for companies to engage on the issue. For companies that don't sign on to PACI, several reasons are given. "There are too many anti-corruption initiatives," and "we cannot take the risk of accepting additional liability," are two examples. PACI, as well as the other initiatives and all companies engaged so far, have thoughtful and sound rebuttals to these concerns and continue to make headway.
Doesn't signing PACI put us at disadvantage to our competitors (that have not signed PACI)?
Most companies already have ethics policies or anti-corruption programmes in place that prohibit bribery.
Joining PACI is an external commitment that companies are making - in many cases for programmes and actions they already have in place. Of course, bribery does continue to be a problem of enormous proportions, but with the momentum being gained in the anti-corruption movement, it will soon be uncommon to condone bribery or corruption of any sort.
How can more companies become engaged?
The key to success will be reaching a critical mass of companies committed to the Partnering Against Corruption Principles for Countering Bribery and having mechanisms to enforce them.
The World Economic Forum provides the opportunity for this to happen because it draws together business leaders.
If more industry groups would follow the lead of PACI, even more progress on the anti-corruption front could be made.
For more information about PACI, please contact the World Economic Forum at paci@weforum.org
[1] www.transparency.org
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